"The Government of the Republic of Panama recognizes that there is only one China in the world," the joint statement said. "The government of the People's Republic of China is the only legitimate government representing all China, and Taiwan is an inalienable part of the Chinese territory."

The Panamanian decision drew an angry response from Taiwan, formally known as the Republic of China (ROC). Taiwan's foreign ministry said it will remove its diplomatic staff from Panama City and halt bilateral cooperation efforts. The ministry issued a statement accusing Panamanian President Juan Carlos Varela of "caving in" to economic pressure from mainland China.

"The ROC government strongly condemns Panama's act, and reiterates that it will not engage in checkbook diplomacy with the Beijing authorities," the statement said.

Panama's move to recognize China leaves only about 20 global governments, mostly small Caribbean and African nations such as St. Lucia and Swaziland, in the Taiwan camp.

China is a major client of the Panama Canal and crucial investor in Panama's development. Most nations, including the U.S., already recognize China as the legitimate government. And China doesn't need state recognition to continue strengthening its economic ties.

But the mainland government has stepped up pressure to isolate Taiwan since President Tsai Ing-wen took office a year ago. She has promised to uphold the status quo between China and Taiwan, but has raised concerns in Beijing that she could ultimately endorse a path toward independence.

"As president, my greatest responsibility is the protection of our national sovereignty," she said. "Greater challenges will only bring greater resolve. Our confidence as a people should not, and will not, be easily defeated. We will endure."

Taiwan, an island nation of 23 million people across the Taiwan Strait from China, was established following a civil war in 1949. The Taipei government has steadfastly maintained its independence while the communist government ruling China's 1.3 billion people consider them part of one nation.

The United States switched diplomatic recognition from Taipei to Beijing in 1979 and does not support Taiwan independence. Nevertheless, a U.S. State Department policy fact sheet states that Washington and Taipei "enjoy a robust unofficial relationship" and military ties. The American Institute in Taiwan acts as an unofficial embassy.

"Maintaining strong, unofficial relations with Taiwan is a major U.S. goal, in line with the U.S. desire to further peace and stability in Asia," the policy states. "The 1979 Taiwan Relations Act provides the legal basis for the unofficial relationship between the United States and Taiwan, and enshrines the U.S. commitment to assist Taiwan in maintaining its defensive capability."